Anyone that has followed my work over the years will know that I’ve been a longtime supporter of cryptocurrencies. Today, seemingly everyone is talking about democratization of this market or that industry. You want to talk real democratization? Look at how virtual currencies and blockchain-based innovations have changed the world. But not every company associated with this sector will succeed. This brings me to Marathon Patent Group (NASDAQ:MARA) and MARA stock.
On paper, Marathon Patent Group is a mess. For years, the company has been a money pit, both in terms of net income and free cash flow. As well, Marathon makes a pittance for revenue, generating only $290,000 in the quarter ended June 30 of this year. Even then, it doesn’t benefit from the law of small numbers. Year-over-year, the blockchain mining outfit suffered negative sales growth of 19.4%.
Indeed, InvestorPlace contributor Will Ashworth is at a loss to explain how to assess MARA stock, whether it’s “overvalued, undervalued, or just about right.” Seemingly, Marathon shares are only showing occasional signs of life due to the resurgence of bitcoin and other cryptocurrencies.
However, even this argument has problems. If you take a look at a technical chart of MARA stock using a logarithmic scale (as I’ll demonstrate below), you’ll notice that it’s suffering from a step-down pattern. Well, that’s a mighty big issue considering that longer term, bitcoin and other major virtual currencies are on a clearly defined uptrend.
When you combine the ugly fundamentals – particularly the costs associated with expensive crypto-mining equipment that hasn’t panned out – it’s easy to dismiss MARA stock. And that’s why Ashworth stated that he can’t “understand how any sane investor can evaluate this opportunity.”
Mainstream Analysts Are Missing the Point about MARA Stock
Ashworth is easily one of the most respected voices in the investment markets. By logical deduction, there’s a good chance I’m insane.
No, I’m not a wholesale proponent of MARA stock. However, I’m a firm believer that traditional investing analysts – even the ones that are bullish on Marathon Group – are completely missing the point. Truly, MARA is a fascinating barometer of the virtual currency ecosystem.
As I mentioned above, MARA stock has printed a step-down pattern in the charts. Comparing that to the bitcoin price, Marathon shares of course look pathetic. But I contend that this is the wrong comparison. Instead, you should stack MARA against bitcoin network difficulty, or the measure of difficulty to mine a Bitcoin block.
If mining becomes too difficult, it’s simply not economically feasible to sustain mining operations. Between September 2014 to December 2017 (the time when several cryptocurrencies hit their peak valuations), bitcoin difficulty increased by nearly 58-fold. Naturally, MARA stock steadily declined during this period.
When you have such an increase in mining difficulty, the process becomes a money pit. However, December 2017 may also have been an inflection point. And this is where Marathon Group starts getting interesting. That’s because from this point to the month so far in August, bitcoin difficulty only increased 10-fold.
Granted, that’s a significant increase. However, that’s a far cry from the 58-fold difficulty increase in the aforementioned period. Now, it’s becoming much more feasible to operate a crypto-mining operation, especially due to the spike in bitcoin prices.
Yes, mining bitcoin has never been more difficult. But because the difficulty has largely stabilized, the strong hands can profit more easily because the variable now is mostly positively moving virtual currency prices.
Buy Marathon or Use It as a Barometer
The above concept bears repeating. Mining difficulty is only one part of the equation. So long as crypto prices are high enough to yield a rational, economic reward, mining makes sense. And in our present environment, a company like Marathon makes the most sense.
While bitcoin has probably reached a threshold that is economically mining-friendly, the ecosystem has scaled up exponentially. Put another way, regular people with a fast computer are no longer able to viably mine bitcoin or other major currencies. Instead, corporations that have vastly more resources are the only realistic competitors.
Interestingly, so many analysts have treated Marathon as a laughingstock, acquiring mining equipment during a time when bitcoin was fading. Now, there’s a possibility that Marathon could have the last laugh.
Even if you don’t want to buy MARA stock, you should still consider it as a barometer. If shares are rising, that means at least a few forward-thinking investors recognize that the economic environment has shifted favorably again to the miners.
That strongly implies rising bitcoin prices. So, the bottom line here is that Marathon is not a joke. Indeed, it could make you money in more ways than one.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he is long bitcoin.